Financial market research and analysis

Asian markets moved lower overnight despite a stronger close on Wall Street. A lack of high impacting economic or market data meant traders continued to focus on Chinese US trade relations ahead of mid-level talks on Wednesday. Market expectations of a major outcome from the talks are being pared back and are ill-founded. The most positive outcome that we could expect from Wednesday’s mid-level talks could be signs of a truce. Should the two sides manage to broker a truce we would expect risk sentiment to lift dramatically, catapulting the markets higher. Let’s not forget that the trade war story has been weighing on stocks, pressuring equities for the last few months so any signs that the risk is moderating on a serious scale will boost investors’ appetite for riskier assets and push equity indices higher.

 

Trump Lashes Out at the Fed (again)

The dollar traded lower for a fourth consecutive session overnight thanks to improved risk appetite and President Trump talking down the dollar (again). Trump taking another swipe at Fed Chair Jerome Powell, pointing Powell out to not be the cheap money guy that he had had initially thought, is not about to change the current path of rate hikes, with the market pricing in a 93.6% probability of a hike in September and 65% chance of a further rate rise in December.

However, Trump could be sowing the seed for market perception problems later down the line. For example, should the stronger dollar result in weaker economic data moving towards December and the Fed decides not to hike. The market could question whether the Fed opted not to hike on the basis of data or to appease Trump? So, whilst Trump will not influence the path of rate hikes, his comments could impact on the market’s perception of what is happening, which is an equally dangerous game to be playing.

 

BHP Billiton Drops Despite Dividend Hitting Record

The mining sector and, in particular, BHP Billiton, will be in focus after the company's results failed to live up to expectations. There was a lot to like in the results, with increasing volumes and higher commodity prices producing a 33% uplift in net profits profits, a record final dividend up 42% and a stable outlook for commodity demand despite growing pressure from trade tensions. However, investors don’t consider the dividend hike to be a permanent fixture and there were several other points of concern, such as rising costs at key copper, oil and coal units and the slashing of productivity savings target in half. Forecasts for FY19 could be downgraded on the back of today’s results.  With the drawbacks at BHP Billiton overshadowing the positives, the stock edged lower on the Australian market.

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